Are you aware of your credit card's repayment history? It is more than just a monthly statement that arrives in the mail every month. These records could affect your creditworthiness in the eyes of potential lenders.

Credit Bureau Singapore (CBS) preserves data from financial institutions such as banks, credit card companies, and other financial organisations, similar to how a financial app tracks your spending. Thus, this bureau possesses all your data regarding credit history ranging from your application for a credit card to loans and the payback history.

For creditors to determine the liability of a potential consumer, a system with such transparency is essential. Therefore, the decision of whether or not the financial institutions grant you the desired loan amount highly depends on your credit score. 

What Is Credit Score?

Just like students’ school reports consisting of test and examination marks, credit scores are accumulated in a credit report. 

Usually between 1,000 and 2,000 points, the highest credit score is often flagged as AA category. This means that you fall in the category of low risk. Whereas a low credit score places you in the HH category that categorises you into a high risk of defaulting the loan. 

An excellent credit score demonstrates to the lender that you are capable of making on-time payments. As a result, you are regarded as a less risky customer and there is a higher chance of your loan application being approved.

What Affects Your Credit Score?

There are a number of factors that influence your credit score:

• Existing credit 

This data comprises your active or open accounts in any credit facilities within the island. If you are currently holding multiple credit cards, your credit score may suffer as a result of your numerous commitments.

• Credit history 

The number of credits you had in the past is displayed in your credit history. This means that your previous payment history and amount borrowed are considered before approving your new credit application.

• Number of enquiries 

When you apply for loans, enquiries are filed by the financial institutions. A higher number of enquiries may project you as a high-risk customer owing to the debts you accumulated and vice versa. 

• Delinquency data

The promptness of your payments to either previous or existing credits will prove your credibility as a potential customer. 

Why Is It Important?

Your credit score plays a significant role as a  deciding factor in your credit loan application. 

Aside from that, your credit score impacts the interest rates you will be charged for your loan. With a higher credit score, you stand a greater chance of qualifying for lower interest rates and down payments. 

Even though the 12-month payments history is used to compute your credit score, keep in mind that financial organisations also keep your credit report for up to 2 to 3 years. 

Safe to say, your current payment pattern influences future loan applications. 

How To Improve Your Credit Score?

In order to fall into the AA category or at least closer to the ideal credit score, try practising the following:

• Make timely payments on your loans

Remember how your credit history reflects upon 12 months of your credit loan? 

So, being disciplined in your credit repayment is important. Ensure your payments are on time and paid with the right amount. 

If you own credit cards, be sure to pay before the end of the monthly cycle. This helps dodge additional fees or interest rates which, again, affects your credit score. 

As for mortgage loans or personal loans, it is best to negotiate with the personnel in charge to revise your payment schedule or the sum when necessary. Essentially, you would want the bank to know and come up with a solution before your late payments take a toll on your credit score. 

• Make as few loan inquiries as possible in a short amount of time

A troubling period can cause us to act impulsively in applying for more loans to pay the existing ones. You may just seem incapable of managing debts with such drastic and irrational decisions.  

To avoid that, space your application for loans wisely. Before considering applying for more loans, sit back and assess your management on current loans and credit card bills. 

With multiple enquiries in less than a year, creditors might find you desperate rather than a responsible borrower. 

• Apply only when needed

At any cost, avoid having more credit cards and loans than you can afford. As much as your annual income and your timely payments may beautify your credit score, biting off more than you can chew can cause you to lose track eventually.

Temptations from welcome bonuses or the need for a backup fund may influence your decision in signing up for a new loan sometimes. Having said that, owning multiple credit cards may seem exciting until you are struggling to pay the principal, interest fees, and other charges.  

Limit your credit loans including credit cards, mortgages, personal loans, and so on. Also, only consider loans when you have an absolute necessity.

• Avoid defaulting loans

When you default on any loan, no matter how much the sum is, it goes without saying that your credit score suffers significant damage. 

Go through your credit cards and terminate the credit cards that you barely use instead of keeping them at the back of your wallet for an emergency that may never come. 

In the context of loans, aspire and work towards the goal of fully settling them. Prolonged unpaid loans can raise litigations against you which will definitely affect all your future loan applications. 

In case you are unable to make payments any time soon and need assistance, look out for credit counselling and restructure your loans. Yes, your credit score might still be affected but, the damage may not be as worse as defaulting loans. 

Shape Your Credit Score In The Best Way Possible  

The key to being financially healthy is to know your role as a borrower. Managing your credits reflects with a good credit score which subsequently can help you in your financial journey.